GBP/USD and EUR/USD Forecast: Sterling and Euro Under Pressure Ahead of the UK Budget

Key Highlight

• The US dollar strengthened: Renewed tensions in the Middle East encouraged investors to favour safer assets, putting pressure on sterling and pushing it below recent resistance levels.
• The euro remained under pressure: Concerns about French public finances returned, reversing the euro's recent recovery following Moody's decision. The single currency moved closer to its weakest level against the dollar in more than a year.
• Sterling faces a crucial test: Despite uncertainty ahead of the UK Budget, the pound held relatively steady against most currencies. However, markets are anticipating greater volatility as investors assess the Chancellor's plans.
• Oil prices eased: Brent crude fell by almost 2%, dropping below $115 a barrel, although geopolitical tensions continue to influence market sentiment.

Market Recap

UK shop price inflation climbed to 2.1% in October, its highest level since February 2024. Rising prices could add to inflationary pressures and complicate the Bank of England's decisions on interest rates.

Sterling remained broadly stable ahead of the Budget, despite options markets signalling larger than usual movements around the announcement. This suggests investors are cautiously optimistic about the Chancellor's plans, although concerns over government borrowing could still trigger a negative reaction.

Meanwhile, the euro struggled to regain momentum as investors questioned whether markets had already priced in too many European Central Bank (ECB) interest rate increases. This uncertainty, combined with concerns over French finances, continues to weigh on the currency.

Market Overview

Currency markets are approaching two important events: the UK Budget and the US Federal Reserve's interest rate decision on Wednesday evening.

Sterling's relative stability suggests investors are expecting a reasonably credible Budget. However, the potential for a sharp reaction remains. Plans that meet expectations may have a limited effect on the pound, while disappointing measures or higher borrowing could put pressure on both sterling and UK government bonds.

Attention will then turn to the Federal Reserve. Interest rates are widely expected to remain unchanged, but the accompanying commentary will be important. With US businesses increasing prices at their fastest pace in four years, concerns about persistent inflation could influence expectations for future rate decisions. The dollar has already begun to strengthen ahead of the announcement.

For businesses and individuals making international payments, these events create uncertainty across GBP and USD exchange rates. The euro also remains vulnerable as investors weigh the outlook for European interest rates against renewed concerns about France's finances.

Euro vs US Dollar (EUR/USD)

Near term: 70% conviction of further weakness.

The euro has surrendered its recent gains following Moody's decision and is approaching its lowest level against the dollar in more than a year. Market positioning suggests further downside remains possible, with Thursday's ECB decision providing the next significant test.

Medium term: 70% conviction of continued weakness.

Economists expect the ECB to hold rates this week before potentially raising them again in December. Meanwhile, the Federal Reserve is expected to continue tightening monetary policy into next year. This outlook could maintain support for the dollar and leave the euro struggling to recover.

A credible agreement on France's budget could challenge this view by easing concerns over the country's finances.

What this means for your currency exchange: If EUR/USD recovers towards resistance, someone buying dollars with €250,000 could receive approximately $1,700 more. If the exchange rate falls back towards its recent low, they could receive around $1,350 less. For those selling dollars to buy euros, the impact would be reversed.

Pound vs US Dollar (GBP/USD)

Near term: 70% conviction of further weakness.

Sterling has fallen below technical levels that restricted its gains last week, while renewed demand for the dollar has increased pressure on the pair. Expectations of further weakness have strengthened ahead of the Budget and the Federal Reserve's decision.

A credible Budget or a more dovish than expected Federal Reserve could support sterling and challenge this outlook.

Medium term: 70% conviction of further weakness.

With markets pricing in broadly similar levels of interest rate increases from the Bank of England and the Federal Reserve, interest rate expectations currently offer sterling little clear advantage. A stronger UK economy or a more hawkish Bank of England could, however, provide support for the pound.

What this means for your currency exchange: If GBP/USD rises towards resistance, someone buying dollars with £250,000 could receive approximately $1,575 more. If the exchange rate falls towards support, they could receive around $3,425 less. For those selling dollars to buy pounds, the impact would be reversed.

Pound vs Euro (GBP/EUR)

Near term: 70% conviction of further gains.

Sterling remains close to its strongest level against the euro in 16 months, supported by renewed concerns over French finances. However, the scale of the recent move leaves the pound vulnerable to a pullback, particularly if the Budget disappoints investors.

Medium term: 70% conviction of further gains.

Markets continue to anticipate more interest rate increases from the Bank of England than from the ECB over the next six months. Persistent UK price pressures could reinforce this difference and help sterling maintain its advantage.

The Budget remains the main near term risk to this outlook.

What this means for your currency exchange: If GBP/EUR falls back towards support, someone buying euros with £250,000 could receive approximately €975 less. As the exchange rate is already close to a 16-month high, there is no reliable upside target identified. For those selling euros to buy pounds, the impact would be reversed.

The Bottom Line

With the UK Budget and Federal Reserve decision approaching, currency markets could become more volatile over the coming days.

The dollar's recent strength and sterling's weaker near term outlook create potential challenges for businesses and individuals who need to purchase US dollars. Meanwhile, those buying euros with pounds are still benefiting from an exchange rate close to a 16 month high.

28th October 2026

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